Rights of Foreign Investors in General
Turkey is a civil law jurisdiction and has modeled a considerable portion of its laws (including data privacy and competition) after EU legislation. Accordingly, foreign investors accustomed to operating in continental Europe will find many, if not most, aspects of Turkish law familiar.
As an overarching theme, there are no general restrictions on foreign investment, or foreign ownership of shares or fund partnership interests in Turkey. With very limited exceptions, foreign investors are treated in the same manner as domestic investors under the law. Accordingly, a company partially or fully owned or controlled by foreign shareholders has the same legal standing and rights as a company owned or controlled by domestic shareholders. Only certain key sectors have certain restrictions approval requirements for foreign investment.
Similarly, subject to customary KYC and AML procedures, which also apply to domestic investors, there is no restriction on foreign persons investing in regulated investment funds, or for a fund to be subscribed to exclusively by foreign partners.
Subject to any potential taxes or withholding requirements, depending on the jurisdictions involved, Turkish law does not impose general restrictions on the repatriation of profits or fund distributions.
A typical private M&A transaction or fund investment process in Turkey follows customary international practices, and documentation is generally modelled after UK and US precedents in style and content both for direct foreign investments and domestic investments (including through local funds).
Sellers and founders typically give customary representations, warranties and indemnities to buyers and investors, consistent with international norms in form and substance. Turkish law will also normally provide the buyer/investor with certain implied representations and warranties.
Provisions such as such as tag-along rights, drag-along rights, rights of first offer and refusal, put/call options, anti-dilution rights and liquidation preferences are ordinarily included in shareholders’ agreements although as an emerging market the use of and disputes over such rights (and consequently the outcome of such disputes) have thus far been more limited in Turkey compared to more developed jurisdictions. Furthermore, most agreements include arbitration clauses, often under the rules of the Istanbul Arbitration Centre, an arbitral body created by statute and whose decisions are readily enforceable.
In recent years, it has become more common for sellers to hire an M&A adviser, prepare information memoranda for prospective buyers and, in some instances, undertake vendor due diligence.
Non-compete and non-solicitation clauses are common post-closing covenants made by sellers and founders. Both types of clauses will normally be upheld by Turkish courts so long as they are of a reasonable geographical, sectoral and temporal scope.
Please see our overviews of private M&A transactions, public M&A transactions and private equity transactions in Turkey.
Intellectual Property Rights
It is possible for Turkish companies to own the economic rights to intellectual property created by their employees and consultants. It is also statutorily possible to protect such rights against infringement (including theft of trade secrets) by third parties.
Subject to specific legislation such as data privacy and bank laws, Turkish law allows companies to store source codes and other intellectual property outside of Turkey and/or sell/license such rights to foreign entities.