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In venture capital and private equity transactions, drag-along
and tag-along rights are standard deal terms. In Turkish-law
transactions, however, the real issue is usually not whether these
clauses can be drafted. It is whether they will actually work when
an exit process becomes live and one side stops cooperating.
That distinction matters in practice. A drag-along clause may
appear robust on paper yet still prove difficult to execute if the
minority refuses to sign transfer documents or deliver share
certificates. A tag-along clause may also offer less practical
protection than expected if the majority closes a sale without
involving the minority and the minority is then left with damages
claim only after the transaction has already been completed.
Under Turkish law, these clauses therefore need to be approached
not only as standard transaction mechanics, but also as
enforceability questions. Where should they be documented? What
limits and uncertainties arise under Turkish company law? What
remedies are realistically available in case of breach? And what
additional drafting and execution tools are needed to ensure that
the clause functions in a real exit scenario?
Key Takeaways
Under Turkish law, drag-along and tag-along rights are typically
documented in the shareholders’ agreement rather than the
articles of association. Their contractual validity is easier to
defend than their corporate-level enforceability. In practice, the
principal risk is often not the absence of the clause, but the
absence of an enforcement structure around it. For that reason,
these rights should be supported by carefully drafted trigger
provisions, notice mechanics, contractual penalties, transfer
execution tools, and an appropriate dispute resolution mechanism.
In limited liability companies, particular attention must also be
paid to the notarized signature requirement under Article 595 of
the Turkish Commercial Code.
Why Drag-Along and Tag-Along Rights Matter?
A drag-along clause allows a majority shareholder, or a
designated investor group, to require the remaining shareholders to
sell their shares to a third-party buyer on the same transaction.
Its commercial function is clear. It removes hold-out risk and
allows the seller to deliver full ownership, or the agreed sale
package, to the buyer. In many acquisition scenarios, particularly
where control or 100% ownership is required, that can be critical
to getting the deal across the line.
A tag-along clause works in the opposite direction. It protects
the minority when the majority proposes to sell its shares to a
third party. Instead of being left behind with an unfamiliar new
controller, the minority is given the right to participate in the
sale on the same terms. In venture capital transactions, this is
often especially important for investors who do not want to remain
locked into the company after a founder-led or majority-led
exit.
In international documentation, both rights are usually
accompanied by detailed procedural rules. Trigger thresholds,
notice periods, exercise windows, treatment of different share
classes, warranty limitations, indemnity caps, several liability
principles, and deemed waiver mechanics are all typically addressed
expressly. That level of drafting discipline becomes even more
important under Turkish law, because the main difficulty is often
not conceptual recognition of the clause, but operational
enforceability.
In Turkish practice, drag-along provisions are also frequently
used in deadlock (impasse) situations, enabling the majority to
compel the minority to participate in a sale and thereby prevent
the company from becoming inoperable. In this context, drag-along
serves as an alternative or complement to classic deadlock
resolution mechanisms such as Russian roulette or buy-out clauses
and is often integrated as part of the broader exit strategy
package in shareholders’ agreements.
Why These Rights Usually Sit in the Shareholders’
Agreement?
Under Turkish law, the natural home for drag-along and tag-along
rights is the shareholders’ agreement. The reason is
straightforward. The shareholders’ agreement is a contract
governed by the Turkish Code of Obligations and may validly
regulate inter-shareholder commitments, including obligations to
transfer shares when specified conditions are met.
At the same time, the shareholders’ agreement binds only its
signatories. Unless the company itself is made a party, the company
is not bound by it. Even where the company is included as a party,
this does not transform the agreement into a corporate-law
instrument. The shareholders’ agreement remains subordinate to
mandatory company law and to the articles of association at the
corporate level. In other words, a board resolution or general
assembly resolution may remain valid from a corporate-law
perspective even if it breaches the shareholders’ agreement and
gives rise to contractual liability.
The Court of Cassation has consistently followed this approach.
In its decision dated 11 October 2016 (11th Civil Chamber, E.
2016/1275, K. 2016/8000), it confirmed that a shareholders’
agreement binds only the shareholders who signed it and does not
affect the validity of general assembly resolutions adopted in
accordance with the articles of association.
The practical consequence is significant. If a drag-along or
tag-along clause appears only in the shareholders’ agreement,
it may create valid contractual rights and obligations between the
parties, but it does not automatically produce corporate-level
effects. It does not by itself invalidate a conflicting share
transfer or general assembly resolution, nor does it automatically
bind third parties acting in good faith. This is the central
enforcement gap in Turkish practice.
Why the Articles of Association Are a Risky
Vehicle?
Because a shareholders’ agreement has only contractual
effect, parties sometimes consider placing drag-along or tag-along
provisions directly into the articles of association in order to
strengthen enforceability. In Turkish joint-stock companies,
however, that route is materially uncertain.
The first obstacle is Article 340 of the Turkish Commercial
Code, which reflects the mandatory provisions principle. In
joint-stock companies, the articles of association may depart from
the statutory framework only where the law expressly allows it. A
clause obliging a shareholder to sell its shares to a third party
under specified conditions is not expressly contemplated by the TCC
as an articles-based mechanism. There is therefore a real risk that
a trade registry may refuse to register such a provision, or that
its corporate effect may later be challenged.
The second obstacle is Article 480(1), which embodies the single
obligation principle. Except where the law expressly provides
otherwise, no obligation may be imposed on a shareholder through
the articles beyond the obligation to pay the subscribed capital. A
forced sale obligation appears, at least at first sight, to go
beyond that limit. The Court of Cassation General Assembly
emphasized the force of this principle in its decision dated 7
October 2020 (E. 2017/2345, K. 2020/739), holding that the articles
may not impose obligations beyond the subscription price, subject
only to narrow statutory exceptions.
There is, of course, doctrinal debate around this issue. One
line of reasoning argues that the single obligation principle is
designed to prevent obligations owed to the company, whereas
drag-along and tag-along obligations are horizontal commitments
between shareholders. On that view, the objection is weaker where
the clause is understood not as a corporate obligation owed to the
company, but as an inter-shareholder undertaking. Some commentators
also suggest that even if such a clause were denied corporate
effect in the articles, it might still survive as a contractual
arrangement among the shareholders who adopted it.
Even so, the litigation risk is real. In its decision dated 28
February 2019 (Istanbul 3rd Commercial Court of First Instance, E.
2016/458, K. 2019/144), the court invalidated an articles clause
providing for a mandatory share sale in a deadlock scenario,
relying on both Articles 340 and 480. That decision is not a
binding precedent, and it concerned a deadlock-based forced sale
between existing shareholders rather than a third-party exit
transaction. Still, it illustrates the practical fragility of
relying on the articles as the main vehicle.
For that reason, the safer and more common approach under
Turkish law remains to document drag-along and tag-along rights in
the shareholders’ agreement and to reinforce them through
separate enforcement tools, rather than to depend on uncertain
articles-based corporate effect.
Drag-Along Rights Under Turkish Law
Legal Character and Option-Based
Structuring
In doctrine, drag-along is generally analyzed as a formative
right. Once the right-holder validly exercises it, a transfer
obligation arises for the shareholder subject to the drag. The
obligor’s further discretionary consent is not required at the
level of contractual obligation.
In practice, however, Turkish practitioners often strengthen
drag-along clauses through call-option style drafting. This is not
merely a drafting preference. It places the mechanism within a
structure that Turkish courts more readily recognize, particularly
in light of Court of Cassation case law on share purchase
options.
The Court of Cassation has accepted option-based structures in
several decisions. In its decision dated 16 March 2018 (11th Civil
Chamber, E. 2018/25, K. 2018/2049), it upheld a share purchase
option agreement as an independent contract. In another decision
dated 31 May 2018 (11th Civil Chamber, E. 2016/10558, K.
2018/4166), it ordered the transfer of shares to the option holder
at the contractually agreed price and treated the judgment as
substituting the missing declaration of intent.
These decisions matter because they support the argument that
specific performance may in principle be available for a properly
structured transfer obligation. At the same time, they also show
why drafting discipline is critical. In its decision dated 22 May
2023 (11th Civil Chamber, E. 2021/9041, K. 2023/3126), the Court
upheld the dismissal of an option exercise claim as premature
because the contractual steps for valuation, appraiser selection,
and written notice had not been completed. Under Turkish law, a
drag-along clause built around option logic will only be as strong
as its trigger mechanics and exercise procedure.
What Happens If the Minority Refuses to
Cooperate?
If the minority refuses to comply after a valid drag-along
exercise, the first theoretical remedy is specific performance. For
uncertificated shares, or shares not embodied in physical
certificates, Turkish courts may in principle issue a judgment with
substitutive effect. Since the transfer of uncertificated
registered shares is generally affected by assignment of the
membership rights, this route is more workable.
Where litigation is required, the claimant should normally seek
a preliminary injunction under Article 389 of the Code of Civil
Procedure at the outset, in order to prevent the shares from being
transferred elsewhere during the proceedings. Otherwise, specific
performance may become impossible.
The position is more difficult for certificated registered
shares. If transfer requires endorsement and physical delivery of
the certificates, a judgment alone may not solve the problem. If
the holder refuses to endorse or hand over the certificates,
enforcement must proceed through the mechanisms applicable to the
delivery of movable property under the Execution and Bankruptcy
Law. That route is slower and operationally burdensome. In a live
M&A or venture exit process, that delay may itself jeopardies
the transaction.
Where specific performance is not feasible or not timely enough,
damages may be claimed under Article 112 of the Turkish Code of
Obligations. If the shareholders’ agreement also includes a
contractual penalty, that claim may usually be pursued as well,
depending on the wording of the clause.
The practical point is simple. Specific performance may exist in
principle, but execution risk remains real. A drag-along clause
should therefore not be drafted on the assumption that a court
judgment alone will solve the problem at closing.
Tag-Along Rights Under Turkish Law
The Right and the Typical Breach
Scenario
A tag-along clause is generally triggered when the majority
proposes to sell its shares, often above a specified threshold or
as part of a change-of-control transaction. The majority is then
required to notify the minority of the proposed sale, identify the
buyer, disclose the price and the material terms, and allow the
minority to participate within a specified exercise period.
The classic breach scenario is not conceptual, but procedural.
The majority sells without proper notice, the buyer is not required
to extend the offer to the minority, or the sale is structured in a
way that defeats the minority’s participation in practice. Once
the transaction closes and the buyer acquire the shares in good
faith, the minority’s position becomes much weaker.
Remedies Upon Breach
In most Turkish-law tag-along disputes, damages against the
majority will be the most realistic remedy. Because the
shareholders’ agreement has only relative effect, the minority
will not usually be able to assert the tag-along right directly
against the buyer unless the buyer has independently assumed the
obligation or is implicated in bad faith.
The damages claim will generally focus on lost exit opportunity.
In principle, the minority may claim the amount it would have
received had it been allowed to participate in the sale, less the
current value of the shares it continues to hold. If the majority
sold at a control premium, the minority’s loss may also include
the gap between that premium price and the lower value of an
illiquid minority stake. In practice, however, these claims are
heavily dependent on expert valuation and may be slower and more
costly than parties initially assume.
For that reason, a contractual penalty is especially valuable in
the tag-along context. If the shareholders’ agreement provides
for a clearly defined penalty upon breach, the minority does not
need to fully prove its actual loss in order to advance a claim.
For merchants, Article 22 of the Turkish Commercial Code also makes
judicial reduction of an agreed penalty more difficult on grounds
of excessiveness, which gives the clause real deterrent value in
commercial transactions.
Some doctrinal arguments support the idea of specific
performance in the tag-along context, in the sense of requiring the
buyer to acquire the minority’s shares on the same terms. In
practice, however, that remedy is far more difficult than in
drag-along disputes, precisely because the buyer is usually not a
party to the shareholders’ agreement. Once the majority’s
transfer has been completed to a good-faith third party, damages
against the majority will usually be the more realistic path.
Form Requirements: Joint-Stock Companies and Limited
Liability Companies
The form issue differs materially depending on the type of
company.
For joint-stock companies, Turkish law does not impose a
notarial form requirement either for the share transfer itself or
for the contract creating the transfer obligation. As a rule, a
written shareholders’ agreement is sufficient.
For limited liability companies, the position is fundamentally
different. Article 595(1) of the TCC requires that the transfer of
an equity share, and any transaction creating an obligation to
transfer it, must be made in writing with notarized signatures. The
phrase “transactions creating a transfer obligation” is
interpreted broadly and may cover preliminary agreements, option
arrangements, and similar undertakings.
The practical consequence is critical. In a limited liability
company, drag-along, tag-along, call option, put option, or similar
transfer-obligation clauses must comply with the notarized
signature requirement if they are to be enforceable. The safest
course is often to have the entire shareholders’ agreement
executed in notarized form, or at least to ensure that the relevant
transfer-obligation provisions comply with Article 595.
What Actually Makes These Clauses Work in
Practice?
A Turkish-law drag-along or tag-along clause should not be
treated as self-executing. Its effectiveness depends on the
enforcement architecture around it.
Contractual Penalties
A well-drafted contractual penalty is often the most effective
deterrent. It should be set at a level that makes breach
economically irrational. In many cases, that means calibrating the
amount by reference to the overall transaction value or the
expected proceeds allocable to the relevant shareholder.
This is particularly important in exit situations, where time
pressure often reduces the practical utility of ordinary damages
litigation. If a party knows that breach will trigger a serious and
enforceable penalty, it is far more likely to comply before the
dispute becomes deal-critical.
Escrow and Delivery Mechanics
Where share certificates exist, the principal execution risk is
often physical delivery. One way to address that is through an
escrow arrangement. At signing, the relevant shareholder may
endorse the certificates in blank and deposit them with a neutral
escrow holder, together with an escrow agreement clearly setting
out the release conditions.
This is not merely an ancillary convenience. It directly
addresses the operational bottleneck that often makes specific
performance too slow to be useful in practice. If the certificates
are already endorsed and held by a neutral third party, the exit is
far less vulnerable to last-minute obstruction.
Powers of Attorney
Parties often supplement the shareholders’ agreement with a
power of attorney authorizing another shareholder or a neutral
third party to sign transfer documents on behalf of the dragged
shareholder. In drafting practice, this is often described as
“irrevocable.” Strictly speaking, Turkish law does not
recognize an absolutely irrevocable mandate. Under Article 512 of
the Turkish Code of Obligations, the principal may revoke the
mandate at any time.
That does not render the mechanism ineffective. Revocation may
still amount to a breach of contract and trigger damages or a
contractual penalty. More importantly, if the power of attorney is
used together with escrow arrangements and properly structured
closing mechanics, the practical disruption caused by revocation
can be materially reduced.
Arbitration
Exit disputes are highly time-sensitive. Ordinary court
proceedings in Türkiye may easily take years once first
instance, appeal, and cassation are taken into account. That is
often commercially incompatible with a live transaction.
For that reason, arbitration will frequently be the more
suitable mechanism for shareholders’ agreement disputes
involving drag-along and tag-along rights. Whether under ISTAC,
ICC, or another institutional framework, arbitration offers greater
confidentiality, more commercially experienced decision-makers, and
often a better chance of obtaining effective interim relief or a
faster merits decision than ordinary court proceedings.
Arbitration will not eliminate every practical obstacle, but it
can materially improve the parties’ position, especially where
the shareholders’ agreement brings all relevant signatories
within a single dispute resolution framework.
Drafting Points Parties Should Not Overlook
Under Turkish law, many drag-along and tag-along disputes are
ultimately drafting disputes. Several points therefore require
particular attention.
The trigger event should be defined clearly. The clause should
specify whether it is activated by a change of control, a sale
above a particular threshold, a board-approved exit, an
investor-majority approval, or another event. Ambiguity at the
trigger level makes enforcement significantly harder.
Economic equality should also be defined with care. “Same
price per share” may be too simplistic where the capital
structure includes preferred shares, liquidation preferences, or
other economic asymmetries. In those cases, the better formulation
is often equivalent economic treatment under the agreed
waterfall.
Where a minority is being dragged, its warranty and indemnity
exposure should be limited appropriately. In English-law and
Delaware-style VC and private equity documentation, dragged
shareholders are typically required to give only title, capacity,
and authority warranties, with liability being several rather than
joint and capped at the sale proceeds received. The same logic is
well worth adopting in Turkish-law documentation.
Tag-along clauses should include clear notice mechanics,
exercise periods, and consequences of silence. Deemed waiver
language can be particularly important in preventing later
arguments that an unresponsive shareholder was not properly
afforded an opportunity to participate.
If the company is a limited liability company, form compliance
should be addressed at the outset rather than after a dispute
arises. Article 595 issues are rarely persuasive once
enforceability has already become contentious.
The dispute resolution clause should also be drafted with the
transaction structure in mind. If the company is expected to
cooperate in the exit process, there may be strong reasons to
include it as a party to the shareholders’ agreement for
specified purposes and to ensure that the dispute mechanism binds
all relevant actors.
A Brief Comparative Note: England and
Delaware
Foreign investors are often more familiar with English and
Delaware approaches, where drag-along and tag-along mechanisms are
treated as more routine.
Under English law, drag-along provisions may be included in the
articles of association, and the articles bind the members under
section 33 of the Companies Act 2006. The principal judicial
safeguard is the unfair prejudice remedy. In Arbuthnott v
Bonnyman [2015] EWCA Civ 536, the Court of Appeal held that a
drag-along provision introduced by amendment was not unfairly
prejudicial where it was exercised in good faith and in the
company’s interests. The English position is therefore
comparatively permissive: the mechanism is broadly accepted, with
fairness review operating as the outer check.
Delaware law is also broadly accommodating. Transfer and sale
arrangements may be documented through the charter, bylaws, or
standalone agreements, and Delaware corporate practice is highly
accustomed to drag-along structures in investment-backed companies.
The principal constraint is not formal discomfort with the clause
itself, but fiduciary review. Where controllers exercise drag-along
rights in a manner that unfairly benefits themselves at the expense
of the minority, Delaware courts may subject the transaction to
fairness-based scrutiny.
The Turkish position is more cautious. The key issue is usually
not whether these rights are commercially legitimate, but whether
they can be given reliable effect within the structure of Turkish
company law and Turkish enforcement practice. That is why
Turkish-law drafting tends to place greater weight on contractual
structuring and enforcement mechanics than an English or Delaware
drafter might instinctively expect.
Conclusion
Under Turkish law, drag-along and tag-along rights are generally
easier to draft than to execute. The Turkish Commercial Code does
not provide a dedicated statutory framework, and reliance on the
articles of association carries meaningful uncertainty,
particularly in light of Articles 340 and 480. For that reason, the
shareholders’ agreement remains the primary legal vehicle.
But the clause itself is only part of the picture. A drag-along
clause that cannot be implemented at closing, or a tag-along clause
that leaves the minority with only a post-closing damages claim,
may provide materially less protection than the parties
intended.
The practical takeaway is therefore straightforward. Under
Turkish law, drag-along and tag-along rights should be drafted as
part of a layered enforcement structure. That usually means clear
trigger and notice provisions, careful treatment of economics and
liability allocation, compliance with any applicable form
requirements, meaningful contractual penalties, workable transfer
execution tools, and a dispute resolution mechanism capable of
producing results before the commercial window closes. In Turkish
practice, that supporting structure is often what determines
whether these clauses are genuinely effective or merely familiar
language on paper.
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.