Due Diligence and Seller Liability in a Turkish Share Purchase: The Gap Between the SPA and Turkish Law

Foreign buyers of Turkish companies routinely assume that a signed share purchase agreement is the whole of their protection. It is not. A share purchase transfers shares, not the underlying business, and Turkish law measures the seller's liability against the object actually sold and the qualities the seller represented. That makes the representations, the disclosure schedule and the knowledge qualifiers the commercially decisive parts of the document. It also introduces a second, less familiar dimension: once the buyer becomes the controlling company, the Commercial Code constrains how it may deal with its new subsidiary.

1. What a Turkish share purchase actually transfers

The mechanics of a Turkish share acquisition are deceptively simple. The buyer acquires shares in a joint stock company or a limited company; the company itself continues unchanged. Its tax number, its licences, its lease, its bank facilities, its employment contracts, its pending lawsuits and its historical exposures all remain exactly where they were. Nothing is assigned, so counterparty consent is not required as a matter of general contract law. That is a starting point, not a conclusion. At least four things routinely displace it: a change-of-control clause in a material contract; transfer restrictions in the articles of association, which for registered shares can make the transfer ineffective against the company until approved; sector regulator approval where the target is licensed; and merger control clearance from the Competition Authority where the turnover thresholds are met. In a limited liability company the position is stricter again, because the share transfer itself requires a notarised deed and, as a default, the general assembly's approval.

Transfer formalities differ sharply between the two corporate forms. Shares in a joint stock company pass with comparatively light formality, particularly where share certificates have been issued. A limited company share transfer is heavier: a notarised transfer instrument, corporate approval, entry in the share ledger, and trade registry registration. Buyers who treat the limited company route as a formality frequently discover at closing that the sequence cannot be compressed.

The consequence for liability is the point that foreign buyers most often miss. Because the legal person survives, every liability attached to it survives too, whether or not anyone knew about it. An unrecorded tax exposure, an unpaid social security assessment, an environmental obligation, a disputed distributorship termination, a defective title to a key asset: none of these are extinguished by the share transfer. They simply become the buyer's economic problem, expressed as a reduction in the value of what the buyer has just paid for.

The buyer's protection is therefore not the transfer itself but what the seller has promised about the company, and what Turkish law adds to those promises.

2. TBK 219 and the statutory backbone of seller liability

Turkish sale law supplies a default liability regime that operates alongside the contract. Article 219 of the Code of Obligations (Law 6098) provides that the seller is liable to the buyer both for the absence in the object sold of the qualities he has in any manner represented, and for material, legal or economic defects that are contrary to its quality or to the quantity affecting its quality, and that eliminate or substantially reduce its value in terms of its intended use or the benefits the buyer expected from it. The article closes with the sentence that matters most in an acquisition context: the seller is liable for those defects even if he was unaware of their existence.

Two features of that provision deserve close attention. First, liability is strict as to defects. A seller who genuinely did not know that the target had understated a liability is still answerable, provided the defect falls within the article. Innocence is not a defence; it is at most a negotiating argument.

Second, the provision is anchored to the object sold. In a share purchase the object sold is the shares. Whether a defect in the company's business is also a defect in the shares is the analytical fault line of Turkish acquisition practice. The safer view for a buyer is that the route through represented qualities is the reliable one: where the seller has affirmatively represented a quality of the business, its absence engages Article 219 directly, because the article expressly covers qualities represented in any manner. The route that relies on a court characterising a business problem as an inherent defect in the shares is materially less predictable, and no buyer should price a transaction on it.

The practical instruction follows: do not rely on the statutory default to describe the business for you. Represent it expressly.

The statutory footing is not open-ended, and this is the point most foreign buyers miss. Two provisions of the Code police it. Under Article 223 the buyer must inspect the thing received as soon as is practicable in the ordinary course of business and, on seeing a defect for which the seller is liable, notify the seller within a reasonable period. A buyer who neglects to inspect and notify is deemed to have accepted what was sold. The rule does not apply to a defect that ordinary inspection would not reveal; but once such a hidden defect does come to light it must be notified immediately, failing which the thing is deemed accepted with that defect too. Under Article 231, every action arising from defect liability time-bars two years after the thing is transferred to the buyer, even where the defect appears later, unless the seller has assumed a longer period. Two qualifications matter: the buyer's right of defence arising from a defect notified within those two years survives the expiry of the period, and a seller who is grossly at fault in transferring a defective thing cannot rely on the two-year limitation at all.

Read together, Articles 223 and 231 explain why the warranty architecture of a Turkish SPA looks the way it does. The contractual notification mechanics exist because Article 223 will otherwise treat silence as acceptance; the negotiated survival periods exist because Article 231 would otherwise close the door two years after closing, which is frequently shorter than the horizon on which tax and social security exposure crystallises. Where the parties want a longer window, the Code contemplates it expressly — the seller may assume a longer period — and that assumption belongs in the agreement, not in an assumption about the default rule.

3. Share deal versus asset deal: how liability differs

The choice of structure is usually driven by tax and by the transferability of licences, but its liability consequences are the more durable ones. In a share deal the buyer inherits the company whole, including its history. In an asset deal the buyer selects what it takes, but Turkish law does not allow a clean escape: under TBK Article 202 a person who takes over an undertaking together with its assets and liabilities becomes liable to the creditors for the debts of that undertaking from the date of notification to them or of announcement in the Trade Registry Gazette. Read the two-year rule the right way round: it is the transferor that remains jointly and severally liable alongside the transferee for two years, running from notification for debts already due and from maturity for later ones. The transferee's own assumed liability does not expire with it. And until the transferee performs the notification or announcement duty, that two-year period does not begin to run at all. Employees transfer with the workplace carrying their accrued entitlements.

Share deal versus asset deal: liability and execution compared

Issue	Share deal	Asset deal
What passes	Shares; the legal person and everything attached to it survives	Identified assets, contracts and liabilities only
Historical tax and social security exposure	Remains inside the company and becomes the buyer's economic burden	Stays with the seller entity, subject to statutory transferee liability for debts connected to the business
Contracts, licences and permits	Continue automatically unless a change-of-control clause bites	Require assignment, counterparty consent or fresh application
Employees	Employment contracts continue unaffected by the share transfer	Transfer with the workplace; accrued rights preserved, with time-limited joint liability of the transferor
Execution burden	Lower; concentrated in the share transfer formalities	Higher; asset-by-asset registration, notarisation and consents
Principal buyer protection	Representations, warranties and indemnities in the SPA	Selective assumption of liabilities plus representations

Neither structure removes the need for diligence. It changes what diligence is for: in a share deal, to find what the buyer will inherit; in an asset deal, to confirm that what is being carved out can lawfully be moved, and that the carve-out will hold against creditors and employees.

Merger control is structure-neutral in principle. Where the relevant turnover conditions are met, clearance from the Competition Authority is a condition precedent in either form, and closing without it is not a risk any buyer should accept.

4. The scope of due diligence in a Turkish target

Diligence in Türkiye is document-heavy and registry-based, and the registries are unusually informative when used properly. A disciplined exercise covers five workstreams that should be run in parallel and reconciled against each other, because the most serious findings usually appear at the seams.

• Corporate and legal. Trade registry gazette history, articles of association and every amendment, share ledger, board and general assembly minute books, powers of representation and their scope, pledges or usufructs over shares, shareholders' agreements and any pre-emption or drag arrangements that could obstruct the transfer.
• Financial. Statutory books against management accounts, related-party balances, off-balance-sheet commitments, sureties, guarantees and aval given for group companies, bank facility covenants and change-of-control triggers, and the quality of receivables actually collectible rather than merely booked.
• Tax. Filed returns and their internal consistency, transfer pricing documentation for intra-group dealings, VAT and withholding positions, any ongoing inspection, and the treatment of items the target has characterised aggressively. Tax findings are the single most common source of post-closing claims in Turkish deals.
• Employment and social security. Employment contracts and their formalities, working time and overtime records, subcontractor arrangements that may in substance be disguised employment, union and collective agreement status, workplace health and safety documentation, and unregistered or under-declared remuneration.
• Litigation and enforcement. Pending court files, arbitration references, enforcement proceedings against the company and, importantly, enforcement proceedings brought by the company that may be uncollectible, plus any injunctive measures or attachments over assets.

Two habits distinguish serious diligence from box-ticking. The first is reconciling registry data against the seller's own disclosure: discrepancies are findings in themselves. The second is converting every material finding into a drafting instruction, whether a specific indemnity, a price adjustment, a condition precedent or a closing deliverable. A finding that produces no clause in the SPA has produced nothing.

5. Representations and warranties versus indemnities

English-language SPAs used in Türkiye import a distinction that Turkish sale law does not make in the same terms, and the translation has to be done deliberately rather than left to chance.

A representation and warranty is a statement of fact about the target at a stated moment. Its function under Turkish law is to establish exactly the represented qualities that Article 219 makes the seller answerable for. Its remedy is compensation for the loss caused by the statement being untrue, and it is normally subject to the negotiated package of limitations: financial floors and ceilings, time limits for notification, and the exclusions the seller has bargained for. The buyer's difficulty with a warranty claim is that the loss usually has to be demonstrated at the level of the shares, not merely at the level of the company, which is where valuation arguments consume time and money.

An indemnity is a promise to pay on the occurrence of an identified event, whether or not the event makes any statement untrue and, if drafted properly, whether or not the buyer can prove diminution in share value. Indemnities are the correct instrument for known and specific risks: an open tax inspection, a pending case with a quantifiable exposure, an unregistered asset, a compliance gap the diligence has already exposed.

The rule of thumb is simple: warranties allocate unknown risk, indemnities allocate known risk. Buyers weaken their own position when they push a known problem into the warranty package, because the seller will then disclose against it, and disclosure is precisely what defeats a warranty claim. A known problem belongs in a bespoke indemnity that sits outside the general limitations, or it belongs in the price.

Governing law and dispute resolution deserve the same discipline. Choosing arbitration with a seat and a language the parties can actually use, and confirming that the resulting award will be enforceable against the seller's assets, is part of designing the remedy rather than an afterthought at the end of the document.

6. The disclosure schedule and knowledge qualifiers

The disclosure schedule is where a well-drafted set of warranties is quietly dismantled, and it deserves as much attention as the warranties themselves. Everything fairly disclosed is, in effect, carved out of the seller's promise. The negotiation therefore turns on three questions.

First, what counts as disclosure. A general disclosure of the entire data room converts diligence into a defence: the seller can argue that anything a diligent buyer might have found was disclosed. Buyers should resist general data room disclosure and insist that only specific disclosures, written against identified warranties with enough detail for the buyer to understand the nature and scale of the matter, have effect. A document buried in a folder without explanation is not a disclosure of the problem it evidences.

Second, when disclosure is made. Disclosure at signing is standard; the question is whether the seller may disclose again at closing for matters arising in the interim. A seller will want that right and will want it to defeat claims. A buyer should either refuse it or, if it is conceded, pair it with a walk-away right where the new disclosure is material.

Third, the knowledge qualifiers. Every warranty softened by a knowledge standard is a warranty partially returned to the seller. This is where the interaction with Article 219 becomes commercially concrete. The statutory rule makes the seller liable for defects even if he was unaware of them; a knowledge qualifier is an attempt to reverse that allocation by contract. Buyers should confine knowledge qualifiers to warranties where the seller genuinely cannot verify the position, define whose knowledge counts by naming individuals, and require that the standard include knowledge those individuals would have had after reasonable enquiry. A bare reference to the seller's awareness, undefined, is close to worthless.

The buyer's own knowledge is the mirror image. Sellers will ask that anything the buyer actually knew be excluded from claims. Where that is conceded, the exclusion should be tied to a defined list of diligence documents, not to a vague standard of what the buyer ought to have discovered.

7. Escrow, holdback and the practical enforcement of claims

A warranty is only as good as the buyer's ability to collect on it. In cross-border deals the seller is frequently an individual or a holding vehicle whose assets may be difficult to reach once the purchase price has been paid and distributed. Contractual remedies that require the buyer to start proceedings, obtain an award and then enforce against a dissipated estate are remedies in name only.

The standard responses are structural rather than doctrinal.

• Escrow. A defined portion of the price is held by a third party under an escrow agreement and released only on the expiry of the claim periods or on the resolution of notified claims. The escrow agreement must specify the release mechanics precisely, including what happens when a claim is notified shortly before a release date, and who bears the escrow costs.
• Holdback and deferred consideration. The buyer retains part of the price and pays it later, with an express right of set-off against warranty and indemnity claims. Set-off is the operative word: without a clear contractual right to set off, the buyer may be obliged to pay while pursuing its claim separately.
• Security over assets. A pledge, a mortgage or a bank guarantee from a creditworthy institution, sized to the identified risk. This is the appropriate response where a specific indemnity covers a large and reasonably quantifiable exposure.
• Warranty and indemnity insurance. Increasingly available for Turkish targets, and useful where the seller will not stand behind the warranties for long. Insurers price and exclude on the basis of the diligence report, so weak diligence produces weak cover.

The claims procedure itself is an enforcement tool. Notification requirements, the level of detail a notice must contain, the conduct of third-party claims, and the deadline for issuing proceedings after notice all operate as conditions on the buyer's rights. Buyers lose good claims on procedural grounds more often than on the merits, and the discipline of diarising every contractual deadline immediately after closing costs nothing.

8. After closing: the buyer becomes the controlling company under TTK 202

The moment the buyer acquires control, its legal position changes character. It is no longer a purchaser negotiating at arm's length; it is a controlling company subject to the group of companies regime in the Commercial Code, and the acquired entity is a dependent company.

Article 202, first paragraph, subparagraph (a) provides that the controlling company may not use its control in a manner that causes loss to the dependent company. The article then lists, expressly, the kinds of direction it prohibits: directing the dependent company to carry out legal transactions such as the transfer of business, assets, funds, personnel, receivables and debts; to reduce or transfer its profits; to restrict its assets with rights of a real or personal nature; to assume liabilities such as giving surety, guarantee or aval; to make payments; to take decisions or measures that adversely affect its productivity or activity, such as failing without just cause to renew its facilities or restricting or halting its investments; or to refrain from taking measures that would ensure its development.

The prohibition is not absolute. It operates unless the loss is actually equalised within that operating year, or a claim right of equivalent value is granted to the dependent company by the end of that operating year at the latest, specifying how and when the loss will be equalised. That is the equalisation mechanism, and its timing is fixed by the operating year rather than by the parties' convenience.

Subparagraph (b) supplies the sanction. If the equalisation is not actually performed within the operating year, or a claim right of equivalent value is not granted in time, every shareholder of the dependent company may request the controlling company and those of its board members who caused the loss to compensate the company's loss. The court may also, upon request or of its own motion, order instead of compensation that the shares of the claimant shareholders be purchased by the controlling company where that would be equitable in the concrete case.

The practical significance depends on the shareholder structure the deal leaves behind. Where the buyer acquires the entire share capital, the claimant class contemplated by subparagraph (b) is narrow. Where sellers, founders or financial investors remain as minority shareholders, the article is a live and immediate constraint on ordinary integration steps, and, under subparagraph (b), the members of the buyer's own board who caused the loss are exposed alongside the company itself.

9. A post-closing integration checklist tied to TTK 202

Integration plans written for a wholly owned subsidiary in another jurisdiction transplant badly into Türkiye. The steps a group treasury function performs as a matter of routine are, on the face of Article 202, precisely the directed transactions the provision addresses. The following sequence keeps integration inside the statutory framework rather than testing it.

1. Map the group transactions actually planned for the first operating year after closing: cash pooling, intra-group loans, management fee arrangements, licensing of the parent's intellectual property, centralised procurement, transfers of personnel, and any surety, guarantee or aval the subsidiary is expected to give for group obligations.
2. Assess each planned transaction against the question the article asks: does it cause loss to the dependent company, judged at the level of that company and not of the group.
3. For any transaction that does, decide before implementation which of the two statutory routes will be used: actual equalisation of the loss within the same operating year, or the grant to the dependent company, by the end of that operating year at the latest, of a claim right of equivalent value specifying how and when the loss will be equalised.
4. Document the decision contemporaneously in the subsidiary's board records, including the valuation basis on which equivalence was assessed. Documentation created after a dispute has emerged carries far less weight than documentation created at the time.
5. Calendar the operating year end as a hard compliance deadline. The statutory routes are time-bound, and a good-faith intention to equalise later is not one of the two options the article offers.
6. Where minority shareholders remain, look at your own side of the group. Subparagraph (b) exposes the controlling company and those of ITS board members who caused the loss — the possessive attaches to the controlling company, so the individuals at risk are the buyer's own directors, not the directors of the target. Map the instruction channels through which your board transmits decisions to the subsidiary, and record who authorised what, because that record is the evidence on which personal exposure under subparagraph (b) will later be assessed.
7. Price the intra-group arrangements on a defensible basis and keep the transfer pricing documentation aligned with the corporate law analysis, so that the same transaction is not defended on inconsistent grounds before a court and before the tax administration.
8. Retain the diligence output. The findings that shaped the indemnities are also the map of the compliance problems that integration must fix, and the claim notification deadlines under the SPA run in parallel with the first year of integration.

Handled this way, the acquisition and the integration become a single continuous exercise. The SPA allocates what went wrong before closing; Article 202 governs what the buyer does afterwards. Buyers who treat the second half as an internal matter, outside the deal, are the ones who later find that the value they negotiated for has quietly migrated out of the entity they bought.

Frequently Asked Questions

Does Turkish law protect a buyer even if the share purchase agreement is silent on a problem?

Partly, and less reliably than buyers hope. Article 219 of the Code of Obligations makes the seller liable for the absence of qualities represented in any manner, and for material, legal or economic defects that eliminate or substantially reduce value in terms of intended use or expected benefits, even where the seller was unaware of them. But the object sold in a share purchase is the shares, so a buyer relying on the statutory default must argue that a business problem is a defect in the shares themselves. That argument is available but unpredictable. Express representations remove the argument.

Is a seller who genuinely did not know about a liability still responsible?

Yes, as a matter of the statutory rule. Article 219 states expressly that the seller is liable for those defects even if he was unaware of their existence. Ignorance is not a defence to defect liability. In practice, however, sellers try to reverse that allocation by contract, through knowledge qualifiers attached to individual warranties and through disclosure. That is why buyers should confine knowledge qualifiers to matters the seller truly cannot verify, name the individuals whose knowledge counts, and require the standard to include what those individuals would know after reasonable enquiry.

What is the difference between a warranty claim and an indemnity claim in a Turkish deal?

A warranty is a statement of fact about the target; breach gives a claim for the resulting loss, usually subject to negotiated floors, caps, time limits and exclusions, and normally requiring the buyer to demonstrate loss at the level of the shares. An indemnity is a promise to pay on a defined event occurring, independent of whether any statement was untrue. Warranties are the right instrument for unknown risk. Known risks identified in diligence belong in specific indemnities outside the general limitations, or in the price, because disclosure defeats warranty claims.

How does the disclosure schedule affect the buyer's protection?

Decisively. Anything fairly disclosed is effectively carved out of the seller's promise, so the schedule can neutralise a carefully drafted warranty package. Buyers should refuse general disclosure of the entire data room, which turns diligence into a seller's defence, and insist that only specific disclosures written against identified warranties, with enough detail to convey the nature and scale of the matter, have effect. The right to disclose again at closing should either be refused or paired with a walk-away right where the new disclosure is material.

Why does a buyer need escrow or a holdback if the SPA already contains warranties?

Because a remedy the buyer cannot collect on is not a remedy. Cross-border sellers are often individuals or holding vehicles whose assets become difficult to reach once the price has been paid and distributed. Escrow keeps a defined portion of the consideration with a third party until claim periods expire or notified claims resolve. A holdback with an express contractual right of set-off achieves a similar result. Security over assets, a bank guarantee, or warranty and indemnity insurance are alternatives sized to the identified exposure.

What does TTK 202 require of a buyer after it acquires control?

Article 202(1)(a) prohibits the controlling company from using its control in a manner causing loss to the dependent company, and lists directed transactions such as transfers of business, assets, funds, personnel, receivables and debts, profit reductions, the granting of surety, guarantee or aval, and measures adversely affecting productivity or activity. The prohibition does not apply where the loss is actually equalised within that operating year, or a claim right of equivalent value is granted by the end of that operating year specifying how and when the loss will be equalised.

Who can bring a claim if equalisation is not carried out in time?

Every shareholder of the dependent company can, and that is what makes the provision dangerous for a buyer who has not acquired one hundred per cent. A single minority holder, however small, has standing on its own — no threshold applies and no other shareholder need join. The claim is not brought for the shareholder's own loss either: it seeks compensation of the COMPANY's loss, so a buyer cannot settle it by making the individual claimant whole. And the court has an alternative it can reach for on its own motion where that would be equitable: instead of compensation it may order the controlling company to purchase the claimant shareholders' shares. For a buyer that means an unresolved equalisation can end not in a damages number it has budgeted for, but in a forced acquisition of the minority at a price the court fixes.

How long does a Turkish buyer have to bring a claim against the seller for defects?

Under TBK Article 231 every action arising from defect liability time-bars two years from the transfer of the thing sold, even if the defect appears later, unless the seller has assumed a longer period. Two exceptions matter: a defence based on a defect notified within those two years survives the period's expiry, and a seller grossly at fault in transferring a defective thing cannot rely on the two-year limitation at all. This default is why survival periods for warranties, and longer periods for tax and social security items, are negotiated expressly in the SPA.

What happens if the buyer does not notify a defect promptly?

TBK Article 223 requires the buyer to inspect the thing received as soon as practicable in the ordinary course of business and, on finding a defect for which the seller is liable, to notify the seller within a reasonable period. A buyer who neglects to inspect and notify is deemed to have accepted what was sold. The rule does not apply to defects that ordinary inspection would not reveal, but once such a hidden defect emerges it must be notified immediately, failing which the thing is deemed accepted with that defect as well.

Do I need the other party's consent to buy shares in a Turkish company?

Not as a matter of general contract law, because a share purchase assigns nothing: the company's contracts stay with the company. But four things routinely displace that starting point. A change-of-control clause in a material contract may trigger consent or termination. Transfer restrictions in the articles of association can make a transfer of registered shares ineffective against the company until approved. A licensed target may need sector regulator approval. And merger control clearance from the Competition Authority is required where the turnover thresholds are met. In a limited liability company the transfer itself needs a notarised deed and, by default, general assembly approval.