Early-stage startups raising seed financing prior to a priced valuation round frequently encounter foreign SAFE (Simple Agreement for Future Equity) or convertible debt templates. Designed around common-law corporate structures with authorised capital and board-issued shares, these instruments do not automatically create shareholdings under the Turkish Commercial Code No. 6102 (TCC).

Distinction between contractual investment undertakings and corporate share issuance

In a Turkish joint-stock company (anonim şirket), issuing new shares under ordinary or registered capital requires a formal capital increase resolution by the general assembly (or by the board under a registered-capital system) and registration with the trade registry, while conditional capital increases require a pre-established framework in the articles of association (TCC Arts. 463(2), 465). A SAFE or convertible investment agreement signed among founders, the company and an investor creates valid obligations under contract law, yet cannot self-execute into shares without those corporate acts if an existing shareholder refuses to vote in favour at the general assembly. Voting undertakings, default remedies and alternative performance mechanics must therefore be structured explicitly. In a conditional capital increase, exercise of conversion or option rights and performance of the capital contribution increase capital automatically under Article 463(2); that mechanism differs from ordinary resolution and registration requirements.

Statutory limits of conditional capital increases (TCC Arts. 463–465) in seed financing

Under Article 463(1) TCC, conditional capital increases may be granted solely to employees or to creditors holding newly issued bonds or comparable debt securities of the company or its group companies. Moreover, the aggregate nominal (par) value of conditionally increased capital cannot exceed 50% of existing share capital (Art. 464(1)), and prior authorisation in the articles of association is mandatory (Art. 465). Although the 50% ceiling caps only the nominal share capital rather than total investment proceeds paid with share premium, the statutory restriction to holders of newly issued debt securities (Art. 463(1)) and the requirement of pre-existing articles-of-association provisions prevent standard SAFE templates from operating directly through conditional capital increases.

Conversion via share-premium capital increases and restriction of pre-emptive rights

In practice, converting an early-stage investment into equity is ordinarily carried out through a regular capital increase issuing shares above nominal value (emisyon primli / agiolu pay). Shares may not be issued below nominal value, and issuing shares at a premium requires authorisation in the articles of association or a general assembly resolution (TCC Art. 347). Allowing the investor to subscribe alone or in a specified proportion requires existing shareholders either not to exercise (or to assign) their pre-emptive rights or to restrict or abolish pre-emptive rights by general assembly resolution; formal restriction or abolition demands justified grounds, an affirmative vote of at least 60% of the share capital, and registration and publication of a board of directors’ report explaining the grounds for restriction and calculation of the issue premium (TCC Art. 461(2)–(4)). Under a registered-capital system, Article 461(2) applies to the board except for the general assembly voting threshold; 60% is not a board quorum.

Valuation caps, discount rates and mandatory rules on founder benefits

Conversion formulas applying a valuation cap or discount rate must ensure that the investor’s total subscription price never falls below the aggregate nominal value of the newly issued shares (TCC Arts. 347, 464(2)). Founders must likewise observe Article 348(1) TCC, under which the articles of association cannot grant free shares or benefits depleting share capital in return for formation labour. Whether funds transferred prior to conversion are recorded in the accounts as debt or as a capital advance should also be determined before signing in view of balance-sheet and tax implications.

Official sources and references

Source links point to official texts and references. This article is provided for general informational purposes only and does not constitute legal advice for any specific matter.