Vesting Agreements Under Turkish Law

1. Introduction and Conceptual Framework

The global entrepreneurship ecosystem has transformed not only financing instruments, but also the methods by which companies secure the long-term commitment of their founding teams and key employees. Particularly in technology-focused start-ups, company value at the outset is often shaped not by tangible assets, but rather by founders' vision, technical know-how, product development capacity, and human capital. For this reason, one of the most critical issues for early-stage companies is to ensure that those who contribute most to the growth of the company remain with the company, to prevent unbalanced shareholding structures arising from early departures, and to establish a sustainable management structure from the perspective of investors.

As a response to this need, vesting arrangements, which developed in Anglo-American law and venture capital practice, have emerged as contractual mechanisms whereby share ownership or the right to acquire shares does not vest immediately and unconditionally, but rather becomes definitive gradually, subject to a certain timeline, performance criteria, or specified departure scenarios. Vesting, which is often rendered in Turkish as "hak ediş," "kademeli pay kazanımı," or "şarta bağlı pay edinimi," is, in essence, a hybrid structure established between the company and a founder, employee, or consultant, regulating the conditions under which a future transfer of shares, acquisition of shares, or a right giving rise to an economic benefit will be earned.

Under Turkish law, the concept of vesting is not expressly regulated under this name either in the Turkish Commercial Code or in the Turkish Code of Obligations. However, this does not mean that vesting mechanisms are invalid under Turkish law. On the contrary, within the framework of the principle of freedom of contract, the parties may freely structure different vesting models concerning the acquisition of shares and the repurchase of shares, provided that such arrangements are not contrary to mandatory provisions, public order, morality, or personal rights. Accordingly, vesting agreements should not be regarded as a typical type of contract under Turkish law; rather, they should be viewed as atypical and multi-layered agreements touching upon the fields of law of obligations, company law, labour law, and, to some extent, tax law.

This article will first explain the origins, economic function, and main types of vesting, and will then outline the models entrenched in Anglo-American practice from a comparative law perspective. It will further examine the legal basis on which vesting agreements may be structured under the Turkish Code of Obligations, the Turkish Commercial Code, labour law, and tax law; and, in particular, it will assess issues of critical practical importance such as cliff, reverse vesting, good leaver / bad leaver, acceleration, and methods of share transfer.

2. Where Did Vesting Agreements Originate and Why?

The concept of vesting historically developed in Anglo-American legal practice. One of the earliest systematic fields in which the concept was used was employer-funded pension plans that contemplated employees becoming entitled after a certain period of time. This logic later became widespread particularly in the Silicon Valley ecosystem in relation to company shares and stock options and evolved into a standard investor expectation aimed at ensuring that founders and employees remain committed to the company for the long term.

The principal reason for the emergence of vesting in venture capital practice is the "dead equity" problem that arises when founders who receive a substantial equity stake at incorporation or in the early stages leave the company shortly thereafter. A person who no longer contributes to the company's growth but continues to hold a significant share in the company's future high value constitutes a serious disincentive both for the remaining team and for new investors. Likewise, for early-stage ventures that are unable to pay high cash salaries, offering employees the prospect of future equity participation or an equivalent economic benefit functions as a non-cash incentive tool.

In this context, the economic rationale of vesting may be summarised along three main axes. First, it has a retention function. By spreading the vesting of rights over time, the company encourages the founder or employee to remain with the company for a certain period. Secondly, it serves incentive alignment. Since the employee's or founder's economic expectation is tied directly to the value of the company, a strong link is established between individual effort and corporate growth. Thirdly, it has an anti-free rider function. By preventing a person who leaves the company early from exiting the system with a full equity stake, the interests of those who remain with the company and of new investors are protected.

Today, particularly in US and UK practice, the inclusion of a founder vesting mechanism in investment round documentation has become almost standard. Venture capital funds often require vesting not only for employees, but also for founders themselves; and even where shares have already been issued to founders upon incorporation, investors frequently request that part of those shares remain subject to the risk of repurchase through a reverse vesting structure. In this way, vesting has ceased to be merely a compensation instrument for employees and has become a central instrument also for investment law, founder relationships, and corporate governance.

3. What Is the Function of a Vesting Agreement and Where Is It Used?

A vesting agreement, in its broadest sense, is a mechanism regulating the earning of company shares or economic rights linked to shares over time and subject to the fulfilment of certain conditions. This mechanism may be structured in the form of a direct share transfer, a share option, a right to subscribe for new shares, phantom stock, or similar incentive arrangements based on economic return.

In practice, vesting is particularly important in four situations. First, it is used in relationships among co-founders. Although the shares may ostensibly be allocated equally or in certain proportions at the time of incorporation, the economic entitlement to those shares may be made subject to vesting over time. Secondly, it is used in employee stock option plans (ESOPs). Under this model, an employee becomes entitled to acquire shares as they remain with the company for a certain period or achieve certain targets. Thirdly, it is used in relationships with consultants or independent service providers. In particular, individuals such as technical consultants, independent board members, or strategic mentors may be granted vesting-based benefits in return for their long-term contribution. Fourthly, it appears in investment transactions, especially in founder vesting structures required by investors to ensure that the founding team remains with the company.

Among these structures, phantom stock (often referred to in Turkish as "gölge pay" or "sanal pay") deserves separate explanation. Under phantom stock plans, no actual ownership of shares is transferred to the employee; instead, the employee is granted a cash-settled economic benefit indexed to the economic value of the company's shares. In other words, the employee does not acquire shareholder status in the company, but benefits, to the extent contractually agreed, from the increase in share value, profit distributions, or the economic benefit arising from an exit transaction. This structure is particularly preferred where it is not desired to broaden the shareholder structure, where the company structure is not operationally suitable for share transfers, or where the intention is to provide only an economic incentive without conferring voting rights. Under Turkish law, phantom stock plans offer practical flexibility in that they avoid the form requirements applicable to physical share transfers and certain performance difficulties specific to company law. That said, under such structures the benefit generally arises as a contractual receivable, and taxation will in most cases come into play as employment income upon payment.

In structures involving a physical transfer of shares or a right to acquire shares, vesting differs from classical salary, bonus, or premium mechanisms. This is because the benefit granted to the individual is not merely a payment, but the opportunity to participate in the future increase in the company's value. Accordingly, vesting simultaneously affects several different areas, including compensation, the shareholder structure, company control, tax burden, and investor protection.

4. Main Types of Vesting Agreements and Core Concepts

4.1. Time-Based Vesting

Time-based vesting is the model most frequently encountered in practice. Under this model, vesting is linked to the period of time that the individual remains with the company. The most common structure consists of a four-year vesting period with a one-year cliff. Under this model, the individual does not vest in any rights during the first twelve months; at the end of the twelfth month, a certain portion of the total entitlement, usually twenty-five per cent, vests in one block. The remaining portion then vests in monthly, quarterly, or annual instalments over the following period.

The greatest advantage of this model is that it is easy to calculate and monitor. It also provides a predictable and standard structure from the perspective of investors. On the other hand, since it is based solely on the passage of time, it is criticised on the ground that it does not establish a direct link between the individual's qualified contribution to the company and the vesting of rights.

4.2. Performance-Based Vesting (Milestone-Based / KPI-Based Vesting)

Under this model, vesting is linked not to time, but to the fulfilment of predetermined commercial or operational targets. For instance, concrete milestones such as reaching a certain number of users, launching the product, achieving certain revenue targets, obtaining a licence, closing an investment round, or completing a particular technical infrastructure may be designated as vesting criteria.

The strength of the performance-based model lies in the fact that it directly links vesting to the company's value creation process. However, in this model the targets must be defined in a clear, measurable, and dispute-resistant manner. Otherwise, serious disputes may arise as to whether the targets have been achieved. In particular, where the target is capable of being influenced unilaterally by the employer or majority shareholder, the principle of good faith and the rules on prevention of the fulfilment of a condition assume particular importance.

4.3. Hybrid Vesting

Under the hybrid model, time-based and performance-based elements are used together. For example, part of the rights may be tied to the individual's remaining with the company for two years, while the remainder may be tied to the fulfilment of certain KPIs. Since this method establishes a more balanced structure between loyalty and performance, it is particularly preferred for founding teams and senior executives.

4.4. Reverse Vesting

Unlike classical vesting, reverse vesting is a model in which the shares are transferred or allocated at the outset, but the unvested portion remains subject to the company's or the other shareholders' repurchase right. It is particularly common with respect to founders. Under this model, the founder appears to hold all of the shares from the outset; however, if the founder leaves before the end of the vesting period, the shares not yet vested may be repurchased at nominal value or at the price determined in the agreement.

Reverse vesting is a highly functional instrument from the perspective of investors. This is because, if a founder receives a substantial equity stake upon incorporation and leaves shortly thereafter, it prevents an ineffective block of shares from remaining within the company. Nevertheless, under Turkish law issues such as the nature of the repurchase price, the limits of liquidated damages, and the form of the share transfer must be structured with care.

4.5. Cliff

A cliff is the minimum waiting period that must elapse before the first vesting occurs. In most vesting plans, it is set at one year. The purpose of the cliff is to protect the company by ensuring that persons who leave after a short period are granted no shares or economic rights at all. If a person leaves before the cliff period expires, they will generally vest in nothing; after the cliff, however, a certain block of rights becomes vested retroactively all at once.

4.6. Good Leaver / Bad Leaver

One of the most critical aspects of vesting agreements is how departure scenarios are classified. A good leaver generally refers to a situation where the individual leaves the company for reasons other than their own gross fault. Death, permanent incapacity, termination by the employer not constituting termination for just cause, or an unreasonable change of role after an investment may fall within this category. A bad leaver, by contrast, is generally used for situations such as material breach, fraud, breach of fiduciary duty, breach of a non-compete obligation, embezzlement, gross negligence, or conduct giving rise to termination for just cause.

The legal consequence of this distinction lies in whether the person will lose only the unvested shares or whether a re-transfer or discounted purchase price mechanism will also apply to vested shares. Under Turkish law, when drafting such provisions, careful consideration must be given to the principle of good faith, the prohibition against penalties to the detriment of employees, and proportionality.

4.7. Acceleration

Acceleration means the speeding up of the normal vesting schedule, i.e. the bringing forward of vesting upon the occurrence of certain events. It typically arises in exit scenarios such as a sale of the company, a merger, a change of control, or an initial public offering. Single-trigger acceleration refers to vesting accelerating solely upon a change of control. Double-trigger acceleration, by contrast, requires first a change of control and then, within a certain period, the occurrence of a second event such as termination without cause, a material adverse change in duties, or a similar event.

In comparative law, the double-trigger model is generally regarded as more balanced, particularly from the perspective of investors. This is because it both protects the employee following the sale of the company and allows the acquirer to retain the key team within the company for a certain period.

5. Vesting in Comparative Law: Core Principles Emerging from Anglo-American Practice

From a comparative law perspective, the most developed examples of vesting are seen in US and UK practice. In the United States, vesting is a deeply entrenched mechanism particularly within Delaware incorporations and venture capital documentation. Reverse vesting for founder shares, stock option plans for employees, restricted stock purchase agreements, and acceleration provisions linked to exit scenarios are all commonly used. These systems demonstrate a high degree of standardisation in cap table planning, tax optimisation, option exercise price, good leaver / bad leaver distinctions, and investment documentation.

In the United Kingdom, vesting has similarly developed particularly alongside tax-advantaged plans such as EMI (Enterprise Management Incentive), thereby creating a framework under which employee share options are incentivised from a tax perspective. Likewise, in France there are BSPCE plans, in Germany VSOP/ESOP structures, and in certain EU countries specific tax regimes for employee participation plans. The general trend in these jurisdictions is to facilitate the granting of equity-based incentives to key employees and to reduce, as far as possible, tax and company law obstacles.

Compared to Turkish law, the most apparent difference is that vesting and employee option plans are far more institutionalised in comparative law. Whereas in Turkish law vesting is generally structured on the basis of general provisions and bespoke contractual engineering, Anglo-American practice offers more established market standards, investor expectations, and tax planning tools. For this reason, when preparing vesting agreements under Turkish law, the direct use of documents translated from foreign precedents may entail serious risks. Although the concepts may appear similar, under Turkish law the form requirements for share transfers, capital increase procedures, the mandatory provisions of labour law, and the taxation regime may lead to very different outcomes.

6. Legal Characterisation of Vesting Agreements within the Framework of the Turkish Code of Obligations

The principal legal basis of vesting agreements under Turkish law is the principle of freedom of contract embodied in Articles 26 and 27 of the Turkish Code of Obligations. Provided that they do not violate mandatory provisions, public order, personal rights, or morality, the parties are free to contractually regulate numerous matters such as share acquisition, share transfer, repurchase rights, consequences of departure, performance criteria, and acceleration mechanisms.

Accordingly, vesting agreements are characterised under Turkish law not as typical, but as atypical agreements. However, this atypical nature does not create an entirely unrestricted field. In order for vesting to be properly structured from the perspective of the law of obligations, it is first necessary to determine the legal function through which the arrangement has been designed.

6.1. Suspensive Condition and Conditional Vesting of Rights

Most vesting agreements may be explained through the provisions of the Turkish Code of Obligations governing conditional obligations. In structures where vesting is linked to the expiry of a period, the fulfilment of performance, or the occurrence of a certain event, the relevant mechanism constitutes a suspensive condition. Before the condition is fulfilled, the individual does not yet acquire full ownership rights, but only an expectant right which may arise in the future.

An important debate in this context is whether the element of time constitutes, in technical terms, a "condition" or a "term." The mere arrival of a specific date may, in itself, be regarded not as a condition but as a term. However, since in vesting the entitlement generally depends not only on the lapse of time but also on the individual's continuing to remain with the company during that period, in practice the structure is treated as a conditional vesting of rights. With respect to performance-based vesting, the character of a suspensive condition is even clearer.

6.2. Prevention of the Fulfilment of the Condition

Article 175 of the Turkish Code of Obligations is of particular importance in the context of vesting. Pursuant to this provision, if one of the parties prevents the fulfilment of the condition in breach of the rules of good faith, the condition is deemed fulfilled. For example, if an employee is dismissed wrongfully or in bad faith shortly before the end of the vesting period solely for the purpose of preventing vesting, it may be argued that the condition should be deemed fulfilled. This provision offers important protection, particularly against bad faith conduct directed at employees or minority founders.

6.3. Preliminary Agreement, Option, and Unilateral Formative Right

The legal characterisation of a vesting agreement may vary depending on the structure used and may take the form of a preliminary agreement, an option agreement, or a conditional undertaking to transfer shares. If the parties mutually undertake to enter into a share transfer agreement in the future, the character of a preliminary agreement may prevail. If, by contrast, the vesting event gives rise to the acquisition of shares or a call right by unilateral declaration, the logic of an option or a unilateral formative right may be more appropriate.

This distinction is particularly important in terms of form requirements. This is because, where the principal transaction to be entered into in the future is subject to a particular form, the issue arises as to whether the preliminary agreement must also comply with the same form. In particular, the notarised written form requirement applicable to limited liability company quotas indicates that vesting should not remain only at an obligational level and that the performance stage must also be designed with particular care.

6.4. Penalty Clause and Repurchase Mechanisms

In bad leaver or reverse vesting structures, it is possible to provide that unvested shares may be repurchased at nominal value, that in certain scenarios a discounted price may also be applied to vested shares, or that substantial compensation may be stipulated in the event of breach. However, such arrangements may qualify as penalty under Turkish law of obligations. Accordingly, the economic result contemplated by the agreement must be proportionate, particularly excessive one-sided provisions to the detriment of employees must be avoided, and a balance consistent with the principle of good faith must be maintained.

7. Performance Structure of Vesting from the Perspective of the Turkish Commercial Code

Although vesting agreements are generally established at the level of the law of obligations, the truly critical issue is how such agreements are to be performed from the perspective of company law. This is because, even if an individual has vested in the shares, in order for the shares to be transferred validly as a matter of law or acquired through the issuance of new shares, the mandatory provisions of the Turkish Commercial Code must be complied with.

7.1. Vesting in Joint Stock Companies

Joint stock companies are the most suitable type of company under Turkish law for vesting structures. Unless there are specific restrictions under the articles of association or the law, the transfer of registered shares may be structured with relative flexibility. The issuance of share certificates or interim share certificates facilitates the transfer process in practice. That said, where the articles of association contain transfer restrictions, lock-up provisions, or mechanisms requiring company approval, the vesting plan must be aligned with them.

In joint stock companies, three principal performance models stand out in connection with vesting. The first is for the existing shareholders to undertake to transfer shares out of their own holdings. The second is for the company to acquire its own shares and create a pool of shares which may then be transferred upon vesting. The third is to grant employees or beneficiaries the right to acquire new shares through a conditional capital increase.

7.2. Conditional Capital Increase

Article 463 et seq. of the Turkish Commercial Code provide the closest institutional basis to vesting in terms of granting employees the right to acquire shares. Under this mechanism, the general assembly grants subscription or conversion rights to certain persons or groups by including the necessary provisions in the articles of association. Once the conditions are met, the beneficiary exercises that right, and the capital is increased without the need for an additional general assembly resolution.

This structure offers significant advantages from the perspective of vesting plans. First, the share pool is legally defined in advance. Secondly, the beneficiary's right to acquire shares is tied to an internal corporate basis. Thirdly, it is not necessary to obtain a new capital increase or shareholders' resolution each time shares are to be granted in the future. Nevertheless, pre-emptive rights, amendments to the articles of association, and the proper planning of the capital structure must all be carefully addressed.

7.3. Acquisition by the Company of Its Own Shares

Another method available for joint stock companies is for the company to acquire its own shares and create a vesting pool pursuant to Article 379 of the Turkish Commercial Code. This method may be functional particularly where the existing shareholders do not wish to transfer shares directly, but it is nevertheless planned that shares will be allocated to employees at a later stage. In this context, the exception relating to financial assistance for employees regulated under Article 380 of the Turkish Commercial Code may also be relevant for certain structures.

On the other hand, where a share pool to be used within the scope of a vesting plan is created through the company's acquisition of its own shares, the total nominal value of the company's own shares that may, as a rule, be acquired for consideration or accepted as pledge pursuant to Article 379 of the Turkish Commercial Code may not exceed ten per cent of the subscribed or issued share capital.

7.4. Vesting in Limited Liability Companies and Structural Difficulties

The limited liability company structure gives rise to serious operational issues in the context of vesting. This is because the transfer of quotas in a limited liability company, and transactions giving rise to an obligation to transfer such quotas, are subject to written form and the signatures must be notarised; moreover, in most cases general assembly approval is also required. This makes performance practically extremely difficult, especially under plans contemplating monthly or quarterly vesting. Requiring separate notarial procedures and company resolutions for each vesting tranche renders vesting costly and cumbersome.

For this reason, in practice the joint stock company structure is regarded as much more suitable for start-ups contemplating a vesting plan. If the company is a limited liability company and intends to implement employee- or founder-based vesting plans, a conversion into a joint stock company should, in most cases, be considered strategically.

8. Vesting from the Perspective of Labour Law: Salary, Fringe Benefit, Bonus and Discrimination Risks

Vesting agreements are important not only from the perspective of company law, but also, especially in plans granted to employees, from the perspective of labour law. Under Turkish law, there is no separate provision directly and specifically regulating vesting or stock option plans. Nevertheless, economic benefits provided to employees and measurable in monetary terms may, depending on the circumstances of the concrete case, be characterised as salary, a supplement to salary, a bonus, or a fringe benefit. Accordingly, employee vesting plans are open to assessment not only as a corporate incentive tool, but also as part of the economic structure of the employment relationship.

Indeed, a recent noteworthy example in this respect is the decision of the 9th Civil Chamber of the Court of Cassation dated 29 November 2022 and numbered E. 2022/7885, K. 2022/15517. In the case at hand, a stock option agreement entered into between the employee and the foreign parent company was treated by the lower courts as an incentive mechanism linked to the employment relationship; and the economic benefit provided under that arrangement was held to constitute a "premium" within the meaning of Article 32 of the Labour Law No. 4857. This approach was also upheld by the Court of Cassation. The decision is important in that it demonstrates that Turkish courts may, at least in certain circumstances, regard stock options and similar equity-based incentives specific to employees not so much as a classical company law instrument, but rather as a benefit linked to the employment relationship.

That said, the decision should be approached with caution. The direct characterisation of a foreign-law governed stock option agreement by reference to concepts of Turkish labour law is open to debate from the perspective of private international law. Indeed, in structures involving a foreign element, issues such as the parties' choice of law, the foreign element of the agreement, and whether Turkish law may come into play only to the extent of overriding mandatory rules must be separately assessed. By contrast, in vesting plans involving no foreign element and established entirely between Turkish parties, the same private international law discussion would not arise with equal weight. In such structures, it is more likely that a court would examine the relevant benefit directly as an element of the employment relationship. Accordingly, although the said decision does not mean that all vesting plans will automatically be treated as a premium in every case, it strongly demonstrates that plans intended to ensure employee retention and performance incentives may be scrutinised through the lens of labour law.

Against this background, several issues must be taken into account when designing vesting plans for employees. First, the principle of equal treatment must be observed. If an employer provides differentiated vesting terms among employees in comparable positions without an objective and reasonable justification, allegations of discrimination may arise. Secondly, the risk that the vesting plan may turn into a workplace practice must be borne in mind. Where a certain benefit is implemented in a regular and repeated manner and creates a legitimate expectation on the part of employees, it may be argued that such benefit has become an implied part of the employment agreement. In Court of Cassation case law as well, continuity, general application, and implementation based on the employer's unilateral will are regarded as determining factors in establishing a workplace practice. In such a case, unilateral withdrawal or restriction of the plan may become more difficult.

Thirdly, depending on the concrete structure of the benefit granted under vesting, it may become debatable whether it is to be associated with a premium, bonus, fringe benefit, or another employee receivable. In particular, where the plan is implemented regularly, tied to the employment agreement or personnel policies, or becomes part of the employer's performance and reward system, the likelihood increases that the benefit will not be regarded merely as a "separate investment relationship." For this reason, the plan document should clearly set out the moment at which the right arises, the vesting schedule, the conditions for exercise, the effects of termination of the employment agreement, and, if any, the scope and limits of the company's or the board of directors' discretionary authority.

Furthermore, the relationship between bad leaver provisions and termination of the employment agreement must also be carefully designed. Provisions containing one-sided and severe penalties to the detriment of the employee, particularly those providing for the automatic forfeiture of all rights irrespective of the grounds for termination, may become controversial in light of proportionality, the principle of good faith, and the protective nature of labour law. Accordingly, departure scenarios such as employer termination, just cause, termination without cause, resignation, material change of role, and similar situations should be defined separately; and the vesting consequences should be regulated in a manner aligned with those distinctions, foreseeable, and proportionate. Otherwise, even if the parties have designed the plan merely as a company law instrument, the possibility that in the event of a dispute the court may treat it as a premium or salary supplement linked to the employment relationship should not be disregarded.

9. Non-Compete Obligations, Leaver Clauses and Dispute Risk

Vesting plans often operate together with non-compete, confidentiality, and intellectual property assignment provisions. The reason for this is that, while granting equity-based incentives, the company also seeks to protect its trade secrets, customer base, and know-how. However, non-compete clauses are subject to strict validity requirements under Turkish law. Non-compete undertakings that are not proportionate in terms of duration, geographical scope, scope of activity, and the employer's legitimate interest to be protected are exposed to the risk of invalidity.

For this reason, it is not appropriate automatically to include every type of departure or every type of competitive conduct within the definition of bad leaver. A breach of a non-compete obligation should be based on a genuinely valid non-compete arrangement and should not exceed the limits of proportionality. Otherwise, both the non-compete provision itself and the vesting penalties linked to it may become questionable.

10. Tax Dimension and Recent Developments

One of the principal elements determining the success of vesting plans is the correct identification of the stage at which, and the category of income under which, such plans will be taxed. Under Turkish tax law, benefits provided to an employee within the scope of the employment relationship and representable in monetary terms are, as a rule, treated as employment income. Therefore, the benefit provided through the grant of shares free of charge or at a discount is, in principle, open to taxation within the framework of the rules applicable to employment income. Communiqué on Income Tax General Communiqué Serial No. 326 expressly states that benefits provided to employees through the grant of shares free of charge or at a discount are to be treated as employment income.

As regards the timing of taxation, the granting, vesting/exercise, and exit stages must be distinguished from one another. At the mere promise stage, where the employee is given the opportunity to acquire shares in the future, but no determinable economic benefit has yet passed into the employee's disposal, it generally cannot be said that a tax event has arisen. By contrast, in the grant of free shares, the benefit is deemed obtained on the date on which the shares are granted; in the acquisition of shares at a discount, on the date on which the right is actually exercised. If the shares are subsequently sold, the capital gains regime may additionally come into play. That said, where the structure grants the employee a directly measurable and effectively exercisable economic advantage already at the granting stage, the concrete structure must be assessed separately.

The most significant recent development in this area is that, following Law No. 7524, an income tax exemption was introduced in respect of shares granted free of charge or at a discount to employees by employers qualifying as techno venture companies. According to Communiqué Serial No. 326, this exemption applies to the portion of the benefit not exceeding the employee's annual gross salary for the relevant year. However, the exemption is not unlimited; where the shares are not held for a specified period, all or part of the exempted tax may, depending on the holding period, be collected from the employer together with default interest. Therefore, although the exemption is important, it cannot be said to offer a comprehensive and risk-free solution for all vesting structures.

In cash-settled structures such as phantom stock, the tax position is comparatively clearer. Since in such structures the employee is provided not with actual shares, but with a cash benefit indexed to the value of the shares, taxation as employment income and withholding arise upon payment. In this respect, phantom structures may produce a more predictable tax outcome than classical share-based models. On the company side, however, whether such benefits granted to employees may be taken into account as a deductible expense in the determination of corporate income depends on factors such as which company bears the payment, whether it is put through payroll at the Turkish employer level, and, particularly in plans sourced from a foreign parent company, whether the cost is recharged to the Turkish subsidiary. For this reason, the corporate tax dimension must also be evaluated separately according to the concrete structure.

Finally, in foreign-element vesting or stock option plans, since taxation risk may arise both in Türkiye and in the relevant foreign jurisdiction, the applicability of double taxation treaties must also be separately assessed. Accordingly, when preparing vesting agreements, the structure must be considered holistically not only from the perspective of company law and the law of obligations, but also in light of employment income taxation, possible capital gains, corporate tax effects, and cross-border tax risks.

11. Main Issues to Be Considered When Structuring a Vesting Agreement Under Turkish Law

The success of a vesting agreement under Turkish law largely depends on the technical accuracy of the document and the chosen performance model. In practice, the following matters in particular should be regulated clearly and in detail:

• The nature of the shares or economic benefit subject to vesting should be clearly identified.
• The vesting schedule should be drafted without ambiguity in terms of the cliff, vesting rate, monthly / quarterly / annual tranches, and commencement date.
• If performance criteria are to be used, their method of calculation, means of proof, and the person authorised to determine them should be specified.
• Good leaver and bad leaver scenarios should be defined in a limited, proportionate, and as concrete a manner as possible.
• If reverse vesting is contemplated, the holder of the repurchase right, the repurchase price, the exercise period, and the procedure should be clearly set out.
• The necessary company law steps should be planned in advance in line with the type of company and the selected performance model.
• If the structure relies on an undertaking to transfer existing shares, additional mechanisms reducing performance risk should be considered.
• Non-compete and confidentiality provisions should be structured within the limits of validity recognised under Turkish law.
• In plans linked to an employment agreement, the mandatory provisions of labour law should also be duly taken into account.
• The tax consequences should be analysed in advance, especially with respect to the moment when the shares are granted and to exit scenarios.

12. Conclusion

Vesting agreements are among the most important instruments of modern entrepreneurship and investment practice. By means of these agreements, the long-term commitment of founders and key employees to the company is strengthened, a direct economic link is established between company value and individual effort, and a more sustainable capital structure is created from the perspective of investors.

Although there is no direct and specific statutory regime concerning vesting under Turkish law, the principle of freedom of contract, the provisions governing conditional obligations, and certain corporate tools set out in the Turkish Commercial Code make it possible, to a certain extent, to establish vesting structures on a legally sound basis. That said, the field of vesting under Turkish law remains fragmented and requires careful legal engineering. In particular, the form of share transfer, the operational difficulties arising from the limited liability company structure, the mandatory limits of labour law, the non-compete regime, and tax uncertainties make it risky simply to import vesting agreements from foreign precedents without adaptation.

For this reason, when preparing a vesting agreement under Turkish law, it is not sufficient merely to look at foreign market standards. What is truly required is to preserve the economic rationale of investment practice while building a hybrid structure that is workable under the Turkish Code of Obligations, the Turkish Commercial Code, labour law, and tax law. In practice, the safest approach will often be to prefer the joint stock company structure, to establish the corporate infrastructure in advance at the level of the articles of association and the shareholders' agreement, to draft the vesting plan in a proportionate manner with respect to departure scenarios, and to design from the outset mechanisms that reduce performance risk.

In conclusion, although vesting agreements are not yet fully institutionalised under Turkish law, when properly structured they constitute a highly effective legal instrument for ventures, investors, and key employees alike. As the Turkish entrepreneurship ecosystem continues to grow, vesting plans are likely to be used more frequently; and, in parallel, doctrine, practice, and possible court precedents may be expected to render this area more clearly defined.

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.