The Shareholders' Agreement (SHA): 10 Mechanisms That Protect Founders and Investors

The shareholders' agreement (SHA) is the contract that does most of the work in company law while remaining invisible from the outside. It is not expressly regulated in the Turkish Commercial Code; it is an atypical contract governed by the law of obligations.

Unlike the articles of association, which are registered with the trade registry and are public, the SHA is confidential and binds only the shareholders and investors who sign it.

Drawing on the agreements we negotiate most often in Turkish M&A transactions and startup funding rounds, we set out below the 10 core protection mechanisms that every founder and investor should understand, along with the practical risks attached to each.

1. Right of First Refusal (ROFR)

This is the principal barrier against control passing to a third party you did not choose.

If a founder or investor wishes to sell their shares to an outsider for, say, TRY 1 million, they must first return to the table and ask the existing shareholders whether they wish to buy at that price.

A common drafting error: if the SHA does not provide for partial exercise, and no single shareholder has the means to acquire the whole block, the mechanism fails and the outside buyer comes in regardless.

2. Tag-Along Rights

This is the minority investor's protection. It prevents a majority holder from selling and leaving the minority behind with a new controlling shareholder they never chose.

If a majority shareholder holding 70% sells to a large group, an investor holding 10-20% can require that their shares be purchased on the same terms and at the same price. If the buyer refuses to take the minority stake, the majority sale is blocked.

3. Drag-Along Rights

The converse mechanism, protecting the majority against a hold-out minority.

Where a buyer wants 100% of the company, this prevents a 1% or 5% shareholder from blocking the exit. Once the threshold set in the agreement is met (75%, for instance), the majority may require the minority to sell on the same terms and at the same price.

Enforceability under Turkish law: because the SHA is an atypical contract under the law of obligations, a drag-along clause does not transfer the minority's shares automatically. It imposes an obligation on the minority, nothing more. If they refuse, you are left with specific performance and contractual penalties, neither of which saves the closing timetable. Drag-along therefore works in practice only when supported by ancillary instruments: a call option over the minority shares, an irrevocable power of attorney granted to the majority, holding the shares through an escrow arrangement, or transfer mechanics reflected in the articles themselves. Without these, the clause remains on paper.

4. Liquidation Preference

The provision venture funds defend most firmly. On a sale, liquidation or deemed liquidation event, it answers the question of who is paid first.

The investor recovers its capital, or a multiple of it (2x, 3x), before any distribution to other shareholders, including founders.

Participating preference: the investor first takes back its capital, then also participates pro rata in the remaining proceeds. Founders who accept this without modelling the outcome can find that very little reaches them on exit.

5. Anti-Dilution Protection

If the company raises at a lower valuation than a previous round (a down round), the earlier investor's position is diluted.

Anti-dilution protection issues additional shares to the earlier investor, at nominal value or for no consideration, to compensate for that dilution.

What to negotiate: founders should press for the market-standard broad-based weighted average formula rather than full ratchet, which transfers a disproportionate amount of equity away from the founders.

6. Reserved Matters and Governance Rights

An investor holding 5% may negotiate a veto list long enough to make ordinary management impossible. Thresholds need to be set so that day-to-day operations are not obstructed.

Vetoes over capital increases, mergers and borrowing above a defined threshold are reasonable. Operational matters such as routine hiring or small expenditure should sit outside the list.

7. Key Person Clauses and Lock-Up

An investor is backing the founders as much as the business. The SHA will typically require named founders to remain full-time in defined roles for a period, commonly four years.

The complementary provision is the lock-up: for the agreed period, no founder may sell or pledge shares. A founder who leaves early is typically treated as a bad leaver, with their shares repurchased at nominal value.

8. Deadlock Resolution

Where the board is split evenly or the parties cannot agree, the agreement needs a mechanism to break the impasse.

Russian Roulette: Party A names a price per share and Party B must either sell at that price or buy A's shares at the same price. Because the party naming the price must be willing to accept either outcome, the mechanism tends to produce an honest valuation.

Texas Shoot-out: Often confused with the above, but structurally different. Here neither party imposes a price; both submit sealed bids, and the higher bidder buys the other's shares at that price. Russian Roulette turns on a single price and a choice; a Texas Shoot-out works like an auction. Which to choose depends on the relative financial strength of the parties: both mechanisms favour the party with deeper pockets, so where resources are unequal, both systematically disadvantage the minority.

Escalation: Referring the matter from the board to the parties' ultimate principals and, failing resolution, to arbitration (ISTAC or ICC).

9. Information Rights

These prevent minority investors from operating in the dark. The statutory right of inspection is thin, and the SHA typically strengthens it, for instance by requiring monthly or quarterly management accounts within a defined period, and an annual audit.

10. Remedies for Breach: Specific Performance and Contractual Penalties

Where an SHA is breached, claims for specific performance and damages arise under the Code of Obligations. The provision that actually deters breach, however, is the contractual penalty.

There is a distinction here that most founders are unaware of, and it determines whether the penalty holds. Under Article 182/3 of the Code of Obligations, a judge reduces of their own motion a penalty considered excessive. Under Article 22 of the Commercial Code, by contrast, a debtor who is a merchant cannot ask for a penalty to be reduced on the ground that it is excessive.

In practice this means that where the SHA is signed by parties with merchant status, such as companies or investment funds, a high penalty largely survives. Where founders sign in their personal capacity, as they usually do, they are not merchants, and the court's power of reduction applies. Drafting a very large penalty "so that nobody dares to breach it" without accounting for this produces a figure far below expectations when the dispute arrives. The penalty should be set at a level that is both deterrent and defensible.

> A 2026 note on minimum capital:

> The minimum share capital is TRY 250,000 for joint stock companies and TRY 50,000 for limited companies (set by a 2023 Presidential Decree, in force from 1 January 2024). Under provisional Article 15, added to the Commercial Code by Law No. 7511, companies whose capital falls below these figures must increase it by 31 December 2026 or be deemed dissolved. The Ministry of Trade may extend this deadline up to twice, by one year each time.

> For SHA parties the risk is concrete: capital increases sit on the reserved matters list in most agreements. An investor holding that veto and declining to approve the increase can push the company towards dissolution within the statutory period. Whether the veto should be disapplied, or made subject to a deadline, for this mandatory compliance step is a point to address in negotiations.

This is a general analysis. Specific SHA negotiations with funds require tailored legal representation.

Last updated: 10 August 2026.